VAT Compliance Challenges in UAE

Effective date of introduction of VAT in UAE is 1 January 2018 as UAE was the first GCC member state to publicly announce the introduction of VAT followed by Saudi Arabia with similar date. As according to the new VAT law maintaining books, accounts, accounting standards, filing returns on time and properly is a big challenge for UAE as VAT compliances is necessary to avoid fines and penalties.

Any company and individuals submitting erroneous, late or incomplete filings under the new law or failed to comply according with the rules and regulations framed by the authority will face penalties and other hefty fines, according to legal experts.

Federal Law No. 7 of 2017 for Tax Procedures sets the foundation for the planned UAE tax framework, directing the organization and collection of tax and clearly defining the roles and duties of the Federal Tax Authority (FTA).

Nimish Makvana, partner at Crowe Horwath UAE stated that "Existing and new investors will have to comply with updated compliance requirements to avoid penalties and fines due to late, incomplete and or erroneous filings. If they find it necessary they can also contact advisory firms and can appoint tax agents and or legal representatives by outsourcing tax compliance obligations, or they can also internalize the process,” where he also added that “if any person who is taxable and is trying to avoid his tax obligations there are very strict provisions for non-compliance which includes fines, penalties and imprisonment to an extent.”

The last VAT directions reported a month ago helped in clearing the air in the UAE for all those who were asking for the clear picture of VAT i.e investors, companies etc. VAT is going to be introduced at a very low rate as it has been set at five per cent on a host of products, but certain segments have been exempted, such as basic consumer goods, healthcare and education, among others.

Makvana clarifies that the new law fixes duties to the assessable people, including non-residents and investors and in addition their operators and representatives, who should enlist and specified compliances, these organizations should meet the turnover criteria of $100,000 (Dh367,300) per annum in any GCC nation.

Chirag Vora, who is managing director of Bafleh Jewellery, said that, according to the new law and compliances companies have to maintaining proper accounting standards, filing proper returns like world economies and timely reporting to government authorities. Companies now will have to invest in proper accounting set up to manage the new tax policies. He also added that, "The new law will definitely streamline the way of doing business in the region with companies required to follow stricter accounting policies and proper due diligences, however the move will further strengthen the UAE's position in the world economy."

UAE VAT framework less complex

The forthcoming VAT framework in the UAE is very less complex and quite simple in terms for consumers and companies’ point of view and lower when compared with numerous different nations, says K.V. Vaitheeswaran, an advocate and tax consultant. He brought up that the VAT framework in the UAE is extremely straightforward contrasted with multi-rate frameworks elsewhere.

He also added that,"I think VAT the UAE considers and proposes is exceptionally basic contrasted with what India has executed. India has actualized an unpredictable framework on the grounds that for the general population in the business or product section various rates are dependably an issue. When you have a various rates of tax collection you will have classification disputes. I think the UAE has straightway tended to that issue by keeping it at one basic rate and after that there is a rundown of exceptions. That will be an incredible accomplishment since effortlessness in rates will take the framework route forward."

MNCs to be treated like local firms

David Stevens, VAT implementation partner at EY Middle East, explains that the Tax Procedures Law will provide the administrative basis for the enactment and enforcement of future tax laws in the UAE by the Federal Government. "Multinationals will get the same treatment just like local companies in terms of the requirements of this law and the proposed excise tax and VAT laws. No distinction will be drawn between the two. Most multinationals are used to complying with record-keeping, tax compliance and possible audits in other jurisdictions, so the presentation of them in the UAE ought not to come as either a shock or significant change from international practices," he noted.

Relief for startups, SMEs?

Makvana called attention to that the law requires "'all taxable entities'' with turnover higher than revenue threshold as above (mandatory registration) and other eligible persons as stipulated (also those who may opt for) who register are required to keep all relevant accounting records (e.g., purchase and sales invoices and commercial books; inventory and customs records for imports and exports, contracts, etc) for at least five years, as well as any tax-related information, (e.g., formal templates and returns, tax receipts, etc), as determined by the law. Right now, there is no different separate relief specified for startups, small and medium enterprises and/or large corporates, in the event that one alludes to all Ministry of Finance workshops and updates, he stated, including that in this way assessment forms, information, data, records and reports must be submitted in Arabic by all entities. The FTA may acknowledge reports in some other dialect, as long as the assessable individual provides a translated copy into Arabic at their expense and responsibility if so asked for by the authority.

Moreover, every individual who is obliged to enroll or is qualified for enlistment must comply within the timelines as stipulated under the law. Saudi Arabia-based entities have recently been given 30 days to register from the date of notification of the law.

TRN must in all transactions

The TRN will be a unique number issued by the FTA for each person registered for tax purposes. As per the new law, as indicated by Makvana, says that enlisted entities must incorporate their expense enrollment number (TRN) in all correspondences and exchanges with the authority or businesses.

Beginning cost

Businesses, however, may need to bear some initial costs, Makvana stated.

"There might be some underlying and coincidental set-up costs amid this business change [initial advisory] and new frameworks programming or updates and after that normal consistence costs on a quarterly basis once the new laws implemented on January 1, 2018. This will be seen as investment" he included.

On a positive note, with the normal income of Dh12 billion out of 2018 from VAT, the central government will have further?

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